Despite media reports to the contrary, Vietnam’s new logistics regulation does not further open up the market to foreign investment but newly requires compliance with e-commerce regulations.

On 20 February 2018, Government Decree No. 163/2017/ND-CP on logistics services will replace the old Decree 140/2007/ND-CP. Many foreign investors had hoped for further clarification and market access in the logistics sector. The new Decree 163 does not grant new rights to foreign investors, at least on paper, and may even introduce new uncertainties in practice. While the most interesting new provision could turn out to affect the digitalization of logistics processes.

Issued in 2007, just when Vietnam acceded to the WTO, Decree 140 is ancient for Vietnamese law standards. The law has moved on since then, as Vietnam opened most service sectors to foreign investors, including many (but not all) business activities in the logistics sector. A few points on Decree 163 are outlined below.

I. “Logistics” redefined

Foreign investors (and Vietnamese businesses seeking foreign investment) must closely review each business activity they plan to conduct in Vietnam to see if foreign ownership limitations and other conditions apply. The old Decree 140 defined “logistics” with reference to Article 233 of the Commercial Law 2005. Article 3 of the new Decree 163 defines and regulates the following “logistics services”:

Logistics services under Article 3 of Decree 163

Container handling services, except for provision of such services at airports.

Container warehousing services as part of maritime transport support services.

Warehousing services as part of support services for all modes of transport.

Wholesaling support services and retailing support services including activities being management of goods in storage, collection, sorting and classification of goods, and goods delivery.

Freight transport services as part of maritime transport services.

Freight transport services as part of inland waterway transport services.

Freight transport services as part of rail transport services.

Freight transport services as part of road transport services.

Air transport services.

Multimodal transport services.

Technical analysis and testing services.

Other transport support services.

Other services provided by logistics service providers and as agreed with their clients in accordance with the basic principles of the Commercial Law.

“Delivery services” and “other transport services” are not further defined in Article 3. The lawmakers probably intended that one refer to the Vietnam Standard Industrial Classification System (VSIC), which is comparable to the United Nation’s Central Product Classification (CPC) codes used in Vietnam’s WTO Service Sector Commitments (WTOSSC) . For example, “delivery services” under VSIC 5230 include delivery of mail and parcels not covered by “freight transportation services.” VSIC 5320 is similar to WTOSSC’s “courier services” (CPC 7512), which includes “express delivery services.” There is no foreign ownership limit in Decree 163 for “delivery services,” nor for “courier services” under the WTOSSC – that’s good news for foreign courier services providers.

II. No changes to foreign ownership limitations (FOL)

WTOSSC and Decree 140 already defined FOL and their respective schedules. Decree 163 does not change anything. Decree 163 addresses FOL of various freight related services but is silent on passenger transportation services.

The below chart summarizes the main foreign ownership caps in the logistics sector. It is a simplified chart, and additional conditions apply to those business lines. Further conditions apply to foreign investors. For example, maritime freight transport companies with up to 49% foreign ownership may register ships in Vietnam and fly the Vietnamese flag, but only up to one third of the crew members may be non-Vietnamese; the captain and the first officer must be Vietnamese citizens. Like other conditions in Decree 163, this is nothing new and was already set forth in the WTOSSC.

One thing that is new in Decree 163 is its express requirement to comply with Vietnam’s e-commerce regulations. Article 4.2 provides that a logistics business conducting part of or its entire business electronically over the Internet, mobile or other “open networks” must comply with e-commerce regulations. Vietnam’s main e-commerce regulation is Decree 52/2013/ND-CP. Decree 52 requires e-commerce service providers to either notify or register with the Ministry of Industry and Trade. E-commerce providers must also protect personal information and consumer interest in accordance with Decree 52 and other laws and regulations. Arguably, though, these e-commerce requirements were already applicable to logistics services that conducted e-commerce activities before Decree 163.

Article 4.2 is very broad and could obviously apply to any business communications over e-mail, messaging apps, web-conferencing, company websites, and social networking sites – just to name few. The question is whether Article 4.2 will also apply to new internal, digital enterprise processes, such as digital supply chain and smart warehousing technologies that utilize “open networks.” Vietnamese law does not define “open networks,” and various literature about the topic is inconclusive as to what it actually means. For instance, one tech article concludes that today “open network” means “user choice” – which is not very helpful from a legal perspective. If IT specialists disagree on the meaning of “open networks,” the various Vietnamese authorities involved in regulating and licensing logistics activities are likely to be confused as well and could interpret Article 4.2 in various, uncertain ways.

Bottom line: The new Decree 163 does not expand market access rights of foreign investors in Vietnam’s logistics sector, but it introduces an explicit requirement to comply with e-commerce regulations.

For more information , please contact Manfred Otto at MOtto@duanemorris.com or any other lawyer you are regularly communicating with at Duane Morris.

Disclaimer: This post has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. Each case should be analyzed individually with the support of competent legal counsel. For more information, please see the firm’s full disclaimer.

Overview on the Trans Pacific Partnership Agreement (TPP) – now the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP)

The TPP was originally known as the Trans- Pacific Strategic Economic Partnership concluded in 2006 among Singapore, New Zealand, Chile and Brunei (P-4 agreement) as a means to promote trade liberalization in the Asia- Pacific Region. As its name indicates, the original purpose of the agreement was only to address economic issues. As the number of participating countries in the P-4 agreement increased, starting with the United States in September 2008 and other countries to follow being Australia, Peru, Vietnam, Malaysia, Canada, Mexico and Japan until July 2013, the agreement is agreed to be “a comprehensive, next-generation regional agreement that liberalizes trade and investment and addresses new and traditional trade issues and 21st-century challenges” by TPP Trade ministers. In June 2015, the United States approved the trade promotion authority for President Obama. The Agreement finally becomes as it is today through tough negotiation rounds, while the last round in Atlanta in September 2015 was considered the most intensive one. The TPP was already concluded on 06 October 2015. However, in January 2017, right after President Trump took his office, the United States formally expressed its withdrawal from the agreement, leaving other 11 parties with the decision to continue the agreement without the United States or not. In November 2017, during APEC meeting in Da Nang, Vietnam, ministers from 11 countries decided to push ahead with the TPP with its new name – CPTPP with only 20 items suspended out of an around 5000-page document, mainly in the Intellectual Property chapter.

CPTTP will help Vietnam make good use of international cooperation opportunities, balance relationships with key markets, approach larger markets including Japan and Canada, boost import-export, reduce import deficit, and attract foreign investment. In addition, CPTTP will also help Vietnam’s economy allocate its resources more effectively, enabling active supports to the processes of restructuring, innovation and improving regulations, and improve administrative reforms.

What makes CPTPP the template for next-generations trade agreements – What are beyond the WTO?

Freer trade zone

Commitments in Trade in goods

Tariff and non-tariff barriers are reduced and removed substantially across all trade in services and goods under the CPTPP. Import tariffs are reduced for 100% goods traded among member states, with more than 90% being eliminated immediately when the Agreement takes effect. The CPTPP also covers issues which have never been addressed in the WTO, including export duties, import duties for re-manufactured goods, market access for re-furbished goods, stricter regulations on import and export licensing, monopolies and goods in transit.

Lower tariff barriers from the CPTPP will give Vietnam greater access to large consumer markets in Japan, Canada and Australia. The potential positive effect on trade could be transformative, with estimates that the CPTPP will boost Vietnam’s exports by over 37% until 2025.

Commitments in Trade in services and Investment

All 11 member states give consent to a liberalized trade in this area. More sectors are opened in the CPTPP compared with the WTO, such as telecommunications, distribution and manufacturing sectors.

In addition, besides incorporating basic WTO principles (national treatment (NT), most-favored nation treatment (MFN), market access, and local presence), the CPTPP takes a negative approach, meaning that their markets are fully open to service suppliers from other CPTPP Parties, except otherwise indicated in their commitments (i.e, non-conforming measures). In order to make such reservations, the member state must prove the necessity of such preservation and negotiate with other member states. If approved, the non-conforming measures are only limited to such list, except for measures in certain sensitive sectors which are included in a separate list. Member states are only allowed to adopt policies that are better than what they commit (ratchet principle). The CPTPP also includes obligations on removal of performance requirements (i.e., no conditions on local content requirements, export conditions, use of certain technology, location of the investment project, etc.) and reasonable requirements on senior management and board of directors. Notably, the CPTPP Chapter on Investment for the first time makes it very clear and transparent concerning the MFN principle, that countries operating in multi-state regime must give foreign investors the best investment conditions of all states, regardless of the state where the investment takes place. Investors are also allowed to petition against the Government from the investment registration stage.

Textiles

Textiles are among Vietnam’s core negotiating sectors. According to suggestions by the United States, negotiations on textiles were conducted separately from negotiations on market access for other goods. To be qualified for CPTPP preferential tariff treatment, the CPTPP applies the yarn-forward principle, meaning textile products must be produced in CPTPP countries from yarn forward. However, the CPTPP includes exceptions that allow (i) certain materials to be sourced from outside CPTPP (“Short supply list”), (ii) certain manufacturing phases (for example, dying, weaving, etc.) to be conducted outside CPTPP; and (iii) one country to be able to use non-CPTPP materials in exchange for its export of certain textile goods to another country.

Government procurement

The CPTPP makes a list of government entities and agencies whose procurement of a particular̉ goods and services at a particular amount must be subject to public tender. This chapter includes NT and MFN principles, removes tender conditions favoring local tenders such as using local goods or local suppliers, conditions on technology transfer or two-way trade and investment, etc. These rules require all parties, especially Vietnam, in the context of China’s bidders predominantly win the bids with cheap offer price but low-quality services, to reform their bidding procedures and protect their own interests by disqualifying tenders with poor performance and low capacity.

Investor-State Dispute Settlement

The CPTPP aims at protecting investors and their investment in the host country by introducing requirements on non-discrimination; fair and equitable treatment; full protection and security; the prohibition of expropriation that is not for public purpose, without due process, or without compensation; the free transfer of funds related to investments; and the freedom to appoint senior management positions regardless of nationality. For the first time investors may sue the Government for its violation of investment-related commitments.

CPTPP also includes procedures for arbitration as means of settling disputes between investors and the host state. It covers new provisions compared with existing agreements such as transparency in arbitral proceedings, disclosure of filings and arbitral awards, and participation of interested non-disputing parties to make amicus curiae submissions to a tribunal. Arbitral awards are final, binding and fully enforceable in CPTPP countries.

Application of the CPTPP and older/ existing agreements

Member states of the CPTPP acknowledge existing rights and obligations of each member under existing international agreements to which all CPTPP member states are parties (for example, the WTO Agreement, NAFTA, or bilateral agreements) or at least two member states are parties. In case there is any consistency between a provision of the CPTPP and a provision of another agreement to which at least two CPTPP member states are parties, these parties will consult with each other to reach a mutually satisfactory solution. Please note that the case where an agreement provides more favourable treatment of goods, services, investments or persons than that provided for under the CPTPP is not considered as an inconsistency.

Implementation deadline of the CPTPP

Brunei, Canada, Malaysia and Vietnam still have some outstanding issues, so further negotiations are necessary. Canada and Japan will also have to agree on auto rules in the CPTPP. However, negotiators have set the goal of signing the CPTPP in the first quarter of 2018. After that, all 11 countries will have to ratify it before it can come into effect.

***

Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Sixty-five million years ago, the last of the dinosaurs went extinct. The event caused dramatic changes to the planet and provided space for new species on earth. A similar event and change is about to happen in Vietnam and all other WTO members. It is the entry into force of the WTO Trade Facilitation Agreement (TFA).

What is the TFA?

The TFA is a document adopted by WTO member countries at the 9th WTO Ministerial Conference in Bali, Indonesia on 6th December 2013 after 10-year negotiation.

In order for the TFA to take place, two-thirds of the 164 WTO members have to notify their ratifications to the WTO after forming a National Committee on Trade Facilitation.

In November 2015, Vietnam became the 60th country to ratify the TFA. On 22nd February 2017, the TFA officially entered into force after Rwanda, Oman, Chad and Jordan submitted instruments of acceptance of the TFA to the WTO, bringing the total number of acceptances to 112 while only 110 ratifications are needed for the TFA’s entry into force. At the time of writing this article, there have been 118 ratifications received by the WTO.

What is the TFA about?

The TFA aims at expediting the movement, release and clearance of goods across borders, helping to cut trade costs globally and creating a significant boost for global trade and commerce system.

The TFA is a self-contained agreement and includes three separate sections. Section I includes 12 Articles covering a range of specific trade facilitation measures. Section II covers special and differential treatment for developing country members and least developed country members. The final section deals with institutional arrangements (i.e., establishment of a Committee on Trade Facilitation within the WTO and at a national level) and miscellaneous provisions. The TFA will interact with other legal commitments specified in the WTO Agreement and Multilateral Agreements on Trade in goods.

The agreement requires its members to ensure the availability and prompt publication of information about cross-border procedures and practices, mandates that rights of appeal for traders be improved, fees and formalities connected to the import and export of goods be reduced, customs clearance procedures be faster and conditions for freedom of transit of goods be improved, just to name a few. The TFA also contains measures for effective cooperation between customs and other authorities involved in the facilitation of trade and customs compliance issues. Overall, the main purpose of the TFA is to simplify and harmonize customs procedures among all WTO member countries, which will later result in cutting red tape that slows down and impedes international trade, thereby speeding up of the goods flow across borders.

Different from other agreements, the TFA pays particular attention to developing and least developed countries when allowing them to set their own implementation schedule. While developed countries have to immediately implement the agreement, developing countries will only have to implement the TFA provisions that they have designated as Category A commitments. Other categories of commitments are Category B commitments, which will be implemented after a given period; and Category C commitments, which will apply to the countries after they are provided with technical assistance and capacity building support. Based on the latest WTO’s statistics, there have been 46% of 240 notifiable article items notified to the WTO, of which Category A measures account for 40.5%, Category B measures account for 3.3% and the remaining 2.3% is for Category C measures.[1] Vietnam has already submitted to the WTO its Category A commitments on 31 July 2014.

Why is the TFA important?

The impact of the TFA implementation can even be compared with the worldwide tariffs reduction and elimination. According to the WTO, full implementation of the TFA can reduce trade costs by 14.3% on average with many developing countries and least-developed countries forecast to enjoy the highest reduction (15.8-23.1%) (including Vietnam). This could result in up to US$1 trillion of gains around the world annually. In addition, the time needed to import and export goods (thanks to streamlined customs procedures) is much more reduced. Full implementation of the TFA also adds 2.7% a year in global export growth by 2030, and creates more jobs and growth on a global scale (i.e., more than 0.5% to world GDP growth). For developing countries and least-developed countries, their annual exports will increase by 3.5% together with an increase in the diversity of exported goods because of the TFA implementation. In US dollar, “the TFA has the potential to increase merchandise exports of developing countries by up to 730 billion dollars per annum.”

The TFA is vitally important and has the potential to fundamentally reform global customs practices. One could question why. Here are some of the main reasons:

The TFA includes provisions on facilitating rapid movement of goods across borders such as advance rulings, pre-arrival processing, allowing the release of goods prior to final determination of customs duties, taxes, fees and charges.

The TFA helps to ensure the predictability of rules and procedures related to trade and customs by requiring its members to timely publish relevant documents preferably on the Internet and establishing enquiry points to respond to enquiries by interested parties.

The TFA aims at creating harmonized process and standards which traders find it familiar and predictable when doing customs procedures in different countries.

The TFA recognizes the importance of growth and benefits for every member states. Thus, it provides for special and differential treatment for developing and least developed countries to make sure these countries receive sufficient assistance to reap the full benefits of the TFA implementation. In addition, the WTO Trade Facilitation Agreement Facility will support developing and least developed countries in addressing their needs and concerns.

Overall, the agreement demonstrates the commitment of the WTO member states to trade reform, and increased confidence in the multilateral trading system.

Impacts on Vietnam?

The TFA is expected to boost national and business competitiveness as a result of Vietnam’s implementation of its commitments under the agreement.

On 13 October 2016, the Prime Minister issued Decision No. 1969/QD-TTg on approving the “Plan of preparation and implementation of the TFA of the WTO”, and identifying specific responsibilities of each ministry in upcoming years (Decision 1969).

According to Decision 1969, the Ministry of Finance (MOF) is the national agency to implement the TFA. In particular, the MOF is responsible for, among others:

Implementing national outreach plans to provide information on the TFA;

Operating the single-window system;

Classifying Categories A, B, and C provisions;

Seeking technical support and assistance for capacity building;

Formulating roadmap for implementation of Categories B and C provisions; and

Reviewing relevant legal framework for further amendments.

Other ministries are tasked with coordinating with the MOF in the implementation of the TFA: the Ministry of Transport, the Ministry of Health, the Ministry of Science and Technology, the Ministry of Agriculture and Rural Development, etc.

Following the issuance of Decision 1969, Vietnam has formulated plans to implement Categories A, B and C. The Prime Minister also signed the decision to formally establish on the National Steering Committee on ASEAN Single Window and the National Single Window regime on trade facilitation. On 06 February 2017, the Government also issued Resolution No. 19/2017/NQ-CP on improving the business environment and national competitiveness. The Prime Minister once said: “It is not acceptable to take 4 days to complete customs procedures for exports which is 2 times higher than the regional average, and 4 days for imports while the regional average is only 3 days.” Following the Government’s directive and strong momentum for reforming customs procedures caused by the TFA implementation, Vietnam has been reviewing thousands of customs procedures and revising several legal documents to bring them into conformity with its commitments in the TFA.

The Government cannot act otherwise if it hopes to help Vietnamese businesses to be competitive in the global marketplace. These improvements will greatly facilitate trade across borders, thereby reducing the costs in both time and money for Vietnamese businesses. In general, it is expected to reduce the time needed to import goods by over a day and a half and to export goods by almost two days. For Vietnam, the TFA could reduce trade costs by 20% and trade facilitation measures will help businesses in formal international trade. According to Mr. Nguyen Dinh Cung, Director of the Central Institute for Economic Management, one-day reduction in customs clearance time could result in a saving of VND1.6 billion. It is a huge amount given the busy customs activities in Vietnam’s ports.

A lot of work has been done so far to implement the TFA. However, there is still a long way ahead and we have good reasons to expect further dramatic changes to come.

***

If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann PhD under omassmann@duanemorris.com. Dr. Oliver Massmann PhD is the General Director of Duane Morris Vietnam LLC.

Foreign investors can now proceed with more certainty when setting up logistic companies or acquiring stakes from Vietnamese partners. Logistics is an area where discrepancies between international treaties and domestic law implementation have caused many headaches. However, Vietnam’s Ministry of Industry and Trade (MOIT) has recently provided more clarity through a guiding regulation (Circular No. 9911/BCT-KH) and a number of official letters, including responses to the Ho Chi Minh City People’s Committee and the Vietnam Business Forum. At the same time, a few Japanese logistics companies have established 100% foreign-invested subsidiaries in Vietnam.

International treaties should supersede national law, and official comments from MOIT have restated that view. So, we initially refer to Vietnam’s WTO service sector commitments (WTOSSC) in most cases. Accordingly, some sectors are open to 100% foreign investment (e.g., warehousing and freight forwarding), while some still require Vietnamese equity participation (e.g., container handling).

As a foreign buyer in an M&A case, besides the purchases price and other conditions, we recommend to consider and differentiate between absolutely essential and optional business lines as well as the best case and acceptable levels of ownership in the target.

Yamato Logistics and Sagawa Express have established 100% foreign-invested subsidiaries in Vietnam. This is possible through strategically limiting business lines to those that are open to 100% foreign investment.

Question:How would you generally describe the impact of the Vietnamese WTO accession on the country?

Answer:

Generally speaking, the WTO accession has created more opportunities and advantages than disadvantages to the Vietnamese economy.

However, without appropriate macroeconomic policies and necessary reforms, these opportunities sometimes did become challenges to Vietnam.

Accordingly, appropriate policy measures following the accession, especially in training and education, migrations, regional and social protection policies were of great importance.

– Macroeconomic impacts:

+ When Vietnam joined the WTO, the world was facing the Great Recession. After the accession, impacts from the global market have become greater due to close connections with other markets, creating more risks to the Vietnamese economy. However, the increase in economic growth is also considerable due to great amount of investment.

+ The import of the heavy industry in Vietnam accelerated after the accession.

+ Vietnam switched from exporting primary commodities to exporting goods produced with high technologies.

+ Since the accession, Vietnam has diverted from agriculture-driven economy to focus more on developing industrial sectors. Areas requiring high technologies have become very attractive.

– Impacts on agriculture:

+ Although the share of agriculture in GDP in Vietnam is decreasing, this field remains crucial to the Vietnamese economy. Agriculture is facing several issues after the accession including quality and competitiveness.

– Impacts on the society:

+ The WTO accession has created several working opportunities for unemployed people.

+ It has also lessen the gap between the rich and the poor and eradicated several gender inequlities in Vientnam.

+ The number of juvenile laborers has largely decreased.

Question: How would you describe the impact of the accession on politics and the economy of Vietnam?

Answer:

a) Impact on the Economy:

+ Positive impacts on economic growth:

Trade liberalization was promoted following the accesion.

Market access was also improved for the country’s exports.

After Vietnam joined the WTO, foreign capital flows strongly poured into the economy and improved the economic growth of Vietnam.

Import clearly has a greater growth due to increase in investment as well as higher average income, allowing access to foreign goods.

Approximately 5.7 million jobs were created prior to the accession (2000-2006).

The annual growth rate of the economy of Vietnam gradually increased from 2001 until 2005 and remained stable, reaching over 8% until 2007.

Limiting poverty. For instance, in the Red River Delta area, the figure for poverty decreased from 62.7% in 1993 to 8.8% in 2006.

+ Negative impacts on economic growth: inequalities among the citizens

b) Impact on the Politics:

– Market opening and international economic integration has put Vietnam’s economy right at the door of opportunities and challenges.

– Vietnamese law has become more transparent and uniform.

– There has been a reduction in administrative procedure, creating flexibility in the market.

– WTO accession has laid a good foundation for Vietnam’s deeper integration into the world’s economy.

– The process of economic integration, particularly since Vietnam joined the WTO, however, revealed the immanent weaknesses of the Vietnamese economy.

– The current situation requires an effective import-export strategy to improve efficiency of resource allocation, improve competitiveness of the economy and macroeconomic stability.

– In this context, it is important to focus on macroeconomic stability, growth paradigm shift towards quality and efficiency as outlined in the Strategy of Social – Economic Development in the period from 2011 to 2020.

Question:In which domains was this impact particularly strong?

– One of the crucial terms of the WTO agreement is trade liberalization.

– After the WTO accession, Vietnam has made a commitment to open markets for services sector. Thus, Vietnam are obliged to open the market (allowing foreign investors to participate in the provision of services in Vietnam or to organizations and individuals in Vietnam) at least at the levels of the commitment. This is one of the main reasons leading to the rise in investment in this sector. Particularly high investment growth in the property business was derived from the transfer of capital from investors from risky markets to the emerging markets with higher returns.

– In the first few years of joining the WTO, the sector has the strongest investment growth in the economy was the property and business consulting services (an increase of 263.0% in 2007 and 15, 0% in 2008); market sectors open to foreign investment, such as finance and credit (up 87.4% in 2007 and 5.8% in 2008); transport, storage and communication (29.5% in 2007 and 5.8% in 2008).

– Growths of this sector are mainly due to the contribution of foreign investments and economic sectors outside the state.

Question:How important would you say is compliance to international trade law – represented through the WTO – in policy making in Vietnam?

Answer:

– WTO is a community which allows easier trading terms among countries with fewer barriers and this was reinforced by international trade law set forward by the WTO.

– Therefore, being in compliance with the international trade law is one of the crucial requirements in joining the WTO as it promotes the integration of the Vietnamese economy into the international economy and it also creates similar opportunities for Vietnam in order to further develop its economy.

Question:Would you say that organizations such as the American Chamber of Commerce or the European Chamber of Commerce in Vietnam gained more leverage in representing their interests through the legal WTO commitments?

Yes.

Part 2: Questions about a concrete policy case in Vietnam

Case description:

In February 2014, the Vietnamese Ministry of Finance set up and amendment draft to the Law on Special Consumption to impose a 10% tax on sugar-sweetened, non-alcoholic carbonated beverages. This caused resistance by different parties, such as the Ministry of Trade and in particular, the American Chamber of Commerce, representing foreign producers of soft drinks. One of the main arguments of the opponents to the tax was that Vietnam could violate its commitment to the principle of “national treatment” because 88% of the products that would be affected by the tax are foreign branded. In the monthly resolution of the government in July 2014 (Document Number: No 56//NQ-CP, point 8), the government declared to not include the proposed tax within the Law on Special consumption.

Letter of the American Chamber of Commerce to the Vietnamese Prime Minister:

Are you familiar with this case? Did you hear about it when it happened?

– Yes.

How would you generally describe this case? Is rather ordinary or more special?

The main reason that the Ministry of Finance proposed such amendment was its concern about the health impacts of sugar-sweetened, non-alcoholic carbonated beverages, such as causing diabetes, obesity, stomachache, gout or even cancer. Concern about health leading to the authority’s decision to impose higher special consumption tax rate is quite ordinary. Many other countries in the region such as Thailand or Cambodia also impose higher tax rate for certain types of beverages not good for public health. In Vietnam, goods such as beer, cigars or alcoholic beverages are also subject to very high special consumption tax rate.

Would you say that the claim of a violation of the principle of “national treatment” is justified?

I believe you are referring to Article III:2 of the GATT 1994. Generally speaking, this Article prohibits members from treating imported products less favourably than like domestic products once the imported product has entered the domestic market.

As you can see, the objective of this article is imported products vs. domestic products. The discrimination in this article is not a discrimination of nationality of investors. For your information, in the Vietnam’s market, most of sugar-sweetened, non-alcoholic carbonated beverages are produced or imported by foreign invested companies in Vietnam. All locally produced and imported goods are subject to this type of tax. However, I agree with the AmCham position paper that despite this equal application, the overall effect of the measure benefits local producers at the expense of foreign producers. Thus, a violation of the NT principle could be established.

Would you say that compliance to WTO law was one factor that caused the tax proposal to fail? If so, how important was that factor compared to others?

WTO has a dispute resolution regime for any members violating its commitments. If there is any dispute arising and the disputing parties have to go to the Dispute Settlement Body, it will not only harm trade relations but also political relations between the parties. Vietnam always wants to comply with the commitments it made for its own sake.

Would you say that the tax – if applied – could have justified a claim through the WTO dispute settlement mechanism?

Vietnam could use Article XX GATT 1994 to make its claim, but it will be hard for Vietnam to meet strict requirements under this exception, especially when there is no established scientific-based evidence available at that time.

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Please do contact the author Oliver Massmann under omassmann@duanemorris.com if you have any questions. Oliver Massmann is the General Director of Duane Morris Vietnam.

Overview on the Trans Pacific Partnership Agreement (TPP)
The TPP was originally known as the Trans- Pacific Strategic Economic Partnership concluded in 2006 among Singapore, New Zealand, Chile and Brunei (P-4 agreement) as a means to promote trade liberalization in the Asia- Pacific Region. As its name indicates, the original purpose of the agreement was only to address economic issues. As the number of participating countries in the P-4 agreement increased, starting with the United States in September 2008 and other countries to follow being Australia, Peru, Vietnam, Malaysia, Canada, Mexico and Japan until July 2013, the agreement is agreed to be “a comprehensive, next-generation regional agreement that liberalizes trade and investment and addresses new and traditional trade issues and 21st-century challenges” by TPP Trade ministers. In June 2015, the United States approved the trade promotion authority for President Obama. The Agreement finally becomes as it is today through tough negotiation rounds, while the last round in Atlanta in September 2015 was considered the most intensive one. The TPP was already concluded on 06 October 2015.
The successful conclusion of the TPP negotiations adds Vietnam to a club of 12 nations accounting for 40% of world’s GDP (about $US28.1 trillion, $39.1 trillion), one-third of global trade ($US11 trillion) and about 800 million consumers.
Vietnam would be the largest beneficiary of this trade pact. Vietnam’s GDP would add an additional increase of 13.6% to the baseline scenario. According to the World Economic Forum, Vietnam is predicted to have the most significant change in GDP in 2025 (i.e., 28.2%) compared with other TPP economies, RECP economies and RCEP-only economies. Vietnam’s real income by 2025 is also forecast to increase by 10.5%, leaving Malaysia’s as the second highest income rising country out of the TPP members far behind.

TTP will help Vietnam make good use of international cooperation opportunities, balance relationships with key markets, approach larger markets including the U.S, Japan, Canada, boost import-export, reduce import deficit, and attract foreign investment. In addition, TTP will also help Vietnam’s economy allocate its resources more effectively, enabling active supports to the processes of restructuring, innovation and improving regulations, and improve administrative reforms.

What makes the TPP the template for next generation trade agreements – What commitments are beyond the WTO Level ?Freer trade zone
Commitments in Trade in goods
Tariff and non-tariff barriers are reduced and removed substantially across all trade in services and goods under the TPP. Import tariffs are reduced for 100% goods traded among member states, with more than 90% being eliminated immediately when the Agreement takes effect. The TPP also covers issues which have never been addressed in the WTO, including export duties, import duties for re-manufactured goods, market access for re-furbished goods, stricter regulations on import and export licensing, monopolies and goods in transit.
Lower tariff barriers from the TPP will give Vietnam greater access to large consumer markets in the US, Japan, Canada and Australia. The potential positive effect on trade could be transformative, with estimates that the TPP will boost Vietnam’s exports by over 37% until 2025. Notably, Vietnam in August also concluded FTA with the EU, putting it on course to complete free trade agreements with three of its four largest export destinations – the EU, Japan and the US.
Commitments in Trade in services and Investment
All 12 member states give consent to a liberalized trade in this area. More sectors are opened in the TPP compared with the WTO, such as telecommunications, distribution and manufacturing sectors.
In addition, besides incorporating basic WTO principles (national treatment (NT), most-favored nation treatment (MFN), market access, and local presence), the TPP takes a negative approach, meaning that their markets are fully open to service suppliers from other TPP Parties, except otherwise indicated in their commitments (i.e, non-conforming measures). In order to make such reservations, the member state must prove the necessity of such preservation and negotiate with other member states. If approved, the non-conforming measures are only limited to such list, except for measures in certain sensitive sectors which are included in a separate list. Member states are only allowed to adopt policies that are better than what they commit (ratchet principle). The TPP also includes obligations on removal of performance requirements (i.e., no conditions on local content requirements, export conditions, use of certain technology, location of the investment project, etc.) and reasonable requirements on senior management and board of directors. Notably, the TPP Chapter on Investment for the first time makes it very clear and transparent with regards to the MFN principle, that countries operating in multi-state regime must give foreign investors the best investment conditions of all states, regardless of the state where the investment takes place. Investors are also allowed to petition against the Government from the investment registration stage.

Textiles
Textiles are among Vietnam’s core negotiating sectors. According to suggestions by the United States, negotiations on textiles were conducted separately from negotiations on market access for other goods. To be qualified for TPP preferential tariff treatment, the TPP applies the yarn-forward principle, meaning textile products must be produced in TPP countries from yarn forward. However, the TPP includes exceptions that allow (i) certain materials to be sourced from outside TPP (“Short supply list”), (ii) certain manufacturing phases (for example, dying, weaving, etc.) to be conducted outside TPP; and (iii) one country to be able to use non-TPP materials in exchange for its export of certain textile goods to another country.
Government procurement
The TPP makes a list of government entities and agencies whose procurement of a particular̉ goods and services at a particular amount must be subject to public tender. This chapter includes NT and MFN principles, removes tender conditions favoring local tenders such as using local goods or local suppliers, conditions on technology transfer or two-way trade and investment, etc. These rules require all parties, especially Vietnam, in the context of China’s bidders predominantly win the bids with cheap offer price but low-quality services, to reform their bidding procedures and protect their own interests by disqualifying tenders with poor performance and low capacity.

Investor-State Dispute Settlement
The TPP aims at protecting investors and their investment in the host country by introducing requirements on non-discrimination; fair and equitable treatment; full protection and security; the prohibition of expropriation that is not for public purpose, without due process, or without compensation; the free transfer of funds related to investments; and the freedom to appoint senior management positions regardless of nationality.
TPP also includes procedures for arbitration as means of settling disputes between investors and the host state. It covers new provisions compared with existing agreements such as transparency in arbitral proceedings, disclosure of filings and arbitral awards, and participation of interested non-disputing parties to make amicus curiae submissions to a tribunal.

Application of the TPP and older/ existing agreements
Member states of the TPP acknowledge existing rights and obligations of each member under existing international agreements to which all TPP member states are parties (for example, the WTO Agreement, NAFTA, or bilateral agreements) or at least two member states are parties. In case there is any consistency between a provision of the TPP and a provision of another agreement to which at least two TPP member states are parties, these parties will consult with each other to reach a mutually satisfactory solution. Please note that the case where an agreement provides more favourable treatment of goods, services, investments or persons than that provided for under the TPP is not considered as an inconsistency.

Implementation deadline of the TPP
Trade ministers will meet in New Zealand on 04 February 2016 to sign this Agreement for it to be ratified in each member states as the next step before the Agreement officially takes effect. The TPP will not take effect unless at least six countries accounting for 85% of the GDP of the bloc ratify it. According to Minister of Vietnam Ministry of Industry and Trade Mr. Vu Huy Hoang, the TPP would promisingly take effect in 2018.

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Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Over the past year, we have seen significant efforts and progress made by the General Department of Customs in terms of improved regulations, more effective e-customs operations, and increased dialogue and consultation with the business community. From 01 January 2015, the new Customs Law takes effect with its implementing Decrees coming into force on 15 March. The implementing Circulars are also already in force from 01 April with the most notable one, Circular No. 38/2015/TT-BTC. This Circular, which replaces 13 previous customs regulations, is considered the most comprehensive among the new regulations. We are looking forward to more regulations being adopted soon following the new Customs Law, for example, regulations on advance customs rulings, post-clearance inspection which stem from the ASEAN agreements implementing the AFTA, the WTO Trade Facilitation Agreement, or regulations in anticipation of the upcoming Free Trade Agreements. These agreements commonly have major requirements on advance customs ruling, availability of information, separation of customs clearance from final determination of duties and taxes, international cooperation in customs, etc. The Prime Minister has adopted Resolution No. 19 for a period of three years, from 2015 to 2018, to prioritize these changes. During the implementation process, Vietnam has been receiving much technical support from foreign experts of the WTO, WCO and other organizations.
We have also seen progress in reforming Vietnam’s tax procedures over the recent years. Up to 01 January 2015, the total time for tax compliance is reduced to 370 hours per year, which is an impressive decrease compared with 872 hours annually according to the 2013 statistics. Time spent for tax declaration and payment is also reduced to 121.5 hours per year, with possibility of online tax declaration and payment. Although German enterprises highly appreciate these tax reforms, we would expect that the efforts are not only at Government or ministerial levels but also at the local levels where we have to deal with the authorities there directly.
Notwithstanding the above positive developments, Vietnam still has much to do in the upcoming time. We address below certain major issues and suggest solutions accordingly.1. Application of blended tax
Blended tax is a combination of ad valorem tariff and specific/ fixed duty rate. Since Vietnam has made WTO commitments in reducing import duty, especially for goods of commercial value imported from WTO members, the application of blended tax could be considered as going against WTO commitments on market opening and tax reduction. We suggest that if the Draft Law on Import and Export Tariff has to include provisions on blended tax, it should specify in which cases it is applicable or else it would create confusion for local companies in Vietnam who are only familiar with either ad valorem or specific duty for each of their commercial goods.2. Application of quota duty
Decree No. 187/2013/ND-CP and Circular No. 111/2012/TT-BTC subject salt, raw tobacco, eggs, and sugar to tariff quota regime. This means if the imported quantity of these goods exceed the quota as prescribed by the Ministry of Industry and Trade or there is no import license as required under the tariff quota regime, import of these products will be imposed an import tariff of 50%-90%. We would suggest these provisions be included in the Law on Export and Import Tariffs rather than Decree No. 197 or Circular No. 11. Moreover, the Law on Export and Import Tariffs should also address applicable import tariffs for minimum and maximum import quota for specific types of goods and the authority to issue documents governing the application of import quota from time to time. This would serve as the basis for the competent authorities to perform their rights and obligations and enterprises to clearly understand government’s import and export policies.3. Tariff policies for goods imported for production of exports
It is recommended that goods which are imported for production of exports be not subject to tariff upon importation. This tariff exemption works more efficiently compared with tax refund upon goods exportation in terms of cash flows burden for export enterprises and will help improve the competitiveness of domestic enterprises. However, there should be a mechanism to monitor and request for tariff payment if the goods are then used for domestic consumption.4. Goods imported for implementation of investment projects
According to the new Investment Law, projects being implemented in certain geographical areas and industries will enjoy tax incentives. The implementing Decrees of the Investment Law or the Law on Export and Import Tariffs should provide a detailed list of such areas and industries. The law should also clarify whether imported goods are still exempted from duty if the investment project is entitled with tax incentives under the initial investment license but is no longer qualified for such preferential treatment due to a change in technology.

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Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.